Does this current market pull back have you worried? Talks of the fiscal cliff may have you on edge? How about issues in Europe and the global economy? Sure, there are plenty of reasons you may want to bail on this market. However, it looks like it's moving as expected, so no need to panic... yet. Looking at the market a few trading days after a Presidential election, specifically every third Presidential Election, so far this market pull back is moving as expected. Looking at charts from 2012, 2000, 1988, and 1976.
Let's start with 1976 (Jimmy Carter over Gerald Ford). The S&P (NYSEARCA:SPY) closed at 103.10 on 11/1 (the market was closed on election day 11/2). 6 trading days later it bottomed at 98.18 intraday (down 4.77%) and closed at 98.81 (down 4.16%). It closed the year at 107.46 (up 9.45% from the low on 11/10/1976).
Next up is 1988 (George H. W. Bush over Michael Dukakis). The S&P closed at 275.15 on 11/8 (election day). Again, 6 trading days later is bottomed at 262.85 intraday (down 4.47%) and closed at 263.82 (down 4.12%). It closed the year at 277.72 (up 5.66% from the low on 11/16/1988).
Well, those two look very similar, especially the initial drops following the election. So how about 2000 in which George W. Bush defeated Al Gore (who can forget that election)? The S&P closed at 1431.87 on 11/7 (election day and strangely almost exactly where we closed on this past election day). 4 trading days later it bottomed at 1328.62 intraday (down 7.21%) and closed at 1351.26 (down 5.63%). It closed the year at 1320.28 (down 0.63% from the low on 11/13/2000).
So how will the current year fare? 2012 in which Barack Obama defeated Mitt Romney. The S&P closed at 1428.39 on 11/6 (election day). Currently (as of the close on 11/13) - that is 5 trading days later and the market bottomed at 1371.39 intraday (down 3.99%) and closed at 1374.53 (down 3.77%) - thus far.
Not as big of drops as the other three examples above. Today is trading day #6 and if the market drops today, my guess is it could easily hit the percentage levels seen in 1976 and 1988 - taking the average of those two elections years, that might put the market around 1362.40 as an intraday low and 1369.25 on the close (a very reasonable drop from current levels). If that plays out, I think going long would be an appropriate action, as it should rally into year end. However, there is that pesky 2000 to look at. If 1360ish falls apart, then this market's next move will most likely be lower and much lower at that. It might look okay by year end, but look at what happened the following 2 years, not good.
So what is going to drive the next move? Most likely the president's press conference today (11/14/12) discussing the negotiations of the fiscal cliff. No need to panic yet, as the market appears to be moving exactly as it should. However, if the market really falls apart (below 1360ish) today, run for the hills. And look - the S&P just cut through 1360, so based on that, running for the hills may be in order.